As Central Bank reinstates regulation

Peso strengthens 15 cents over three straight days

The Central Bank’s decision to restrict the amount of foreign currency holdings banks can have in their coffers this week led to a rarity: the peso strengthened for three straight days.

That strengthening marked quite a change after the steep devaluation two weeks ago.

And while the official peso rate rose, all associated rates were also affected as the illegal — or “blue” — dollar and the blue-chip swap experienced drops of more than one peso.

The official dollar rate dropped four cents on Friday and closed at 7.85 pesos in banks and exchange houses, accumulating a 15-cent drop this week. For its part, the illegal dollar also weakened 27 cents at the end of the week to close at 12.13 pesos, accumulating a 40-cent decline. The same happened with the blue-chip swap that dropped 60 cents on Friday and closed at 11.04 pesos with a 1.10-peso-drop this week.

The decline was due to the reinstatement of a Central Bank rule that restricts the amount of foreign currency holdings banks can hold to a maximum 30 percent of the institutions’s financial liability or its liquid equity, whichever its lower. At the same time, a 10-percent limit was set for the futures exchange market

The Central Bank’s measure forces banks to sell their additional foreign currency holdings, which are estimated at US$3.5 billion, leading to more foreign currency being available on the market. That had a direct impact on the exchange rates and allowed the Central Bank to widen its foreign reserves on Friday for the first time this month, growing US$19 million to end the week at US$27.821 billion.

While economists agree the strengthening tendency of the peso will continue until the Bank deadline in April to adapt to the new regulation, the government will not let the appreciation grow too much in order to respect the eight-peso exchange rate promised to grain exporters.